Nervous officials in the deeper recesses of Whitehall were left surreptitiously consulting the rulebooks to see what would happen if the detention of Gerry Adams prompts Sinn Féin to abandon its support for the power-sharing executive in Northern Ireland.

The answer is not pretty: new elections and the return of direct rule from London over Northern Ireland if Martin McGuinness resigned as deputy first minister and the SDLP declined to support a new executive.

Figures on all sides believe a collapse of the institutions at Stormont remains a long way off. But there is no doubt the arrest of Adams – the central figure, along with McGuinness, in persuading the Provisional IRA to abandon the armed struggle – is one of the most significant and potentially dangerous moments in the 20-year-old peace process.

Shaun Woodward, Labour's last Northern Ireland secretary, highlighted the threat when he told the Guardian: "This is a very serious and tense moment in the history of the peace process and the political process."

The emotional reaction among political leaders in London and Belfast was astonishment that Adams, a global figure feted in Washington during the Clinton years, could be arrested weeks after McGuinness donned white tie and tails for a Windsor Castle banquet.

This reaction was quickly followed by a more rational response: the arrest was inevitable because all sides in Northern Ireland have failed to agree a way of dealing with the past.

Woodward said: "So long as Northern Ireland continues to avoid having a mechanism to deal fairly with the legacy issues of the pre-1998 Good Friday agreement there will inevitably be these tense and potentially quite dangerous and threatening moments in the peace process and the political process."

All sides in London agreed that the police service of Northern Ireland (PSNI) was acting properly within the law. "There is no doubt that the evidence was presented and Matt Baggott [the chief constable of the PSNI] would have made clear that normal procedures would need to be followed," one minister said. "Anything else would be unthinkable."

But Labour figures associated with the peace process believe the law is flawed and should have been amended to keep pace with the historic changes in Northern Ireland. The negotiations on the Good Friday agreement led to the highly controversial release on licence of paramilitary prisoners who had served two years. But there were two anomalies – the so-called "on-the-runs", who lived outside Northern Ireland, and potential suspects in Northern Ireland who had never faced justice. Adams is potentially in the second category.

Peter Hain, Tony Blair's last Northern Ireland secretary, attempted to deal with the "OTRs" by introducing a bill in 2005 that would have established a judicial tribunal leading to the conviction of those who committed offences during the Troubles. The offenders, who would not have had to appear before the tribunal, would then be freed on licence. But Hain had to withdraw the bill in January 2006 after Sinn Féin withdrew its support for the measure because the law would also have applied to members of the security forces.

The collapse of the bill meant that police have little choice but to follow the evidence wherever it may lead.

Hain told the Guardian: "If you go down this road you have got to ruthlessly pursue everybody. And if everybody, from Bloody Sunday soldiers to republican paramilitaries and loyalist paramilitaries, are not treated even-handedly then people will call foul on either side of the divide.

"Nobody would make an equivalence comparison between a member of the security forces or the police and a terrorist. They are not the same. But if they broke the law they broke the law."

Some Labour figures believe the arrest of Adams over events from late 1972 while soldiers on duty on Bloody Sunday in early 1972 have not been arrested could be a gift to dissident republicans. One figure said: "You can see those republicans opposed to the peace process saying there is one rule for the Brits and another for republicans."

Hain and Woodward believe the principal reason for the renewed threat to the peace process is the failure of all sides to agree to a way of dealing with the past. After the trial of the alleged Hyde Park bomber and "OTR" John Downey collapsed last year, Hain called for a South-African-style process that would fall short of an amnesty. Suspects would admit their role in an atrocity and would be offered immunity in return.

But Hain argues that, David Cameron is partly responsible for failing to engage in the peace process. He said: "I don't think this government is engaged to anything like the same extent as we were. I don't think in one sense it needs to be because the peace process is locked in. But to be frank I don't think they have the same understanding, I don't think there is the same empathy with Northern Ireland in all its different textures and colours as there was under Tony Blair. They are light years away from that and it tells."

Asked whether Cameron bore some responsibility to deal with the past, Hain said: "I think it is part of the problem. But it is not the main problem which is the mindset among the politicians in Northern Ireland."

Changes to the law are for the future. At the moment the fate of the peace process will be decided in a custody suite at an Antrim police station.